Click on a term to see its definition: P

Lost in the terminology insurance companies use? Our quick-reference insurance glossary provides easy-to-understand definitions and examples of the terms insurance professionals use.

Package Policy

A Package Policy refers to several risks being covered under one insurance policy. These coverages or distinct lines of insurance were sold separately in the past, but insurance companies now offer them in one package.

For instance, a homeowners insurance policy may cover several risks, such as fire, theft, and personal liability.

The advantage of having a package policy is that it is cheaper since as opposed to the costs linked to issuing two or more policies. The insured homeowner also will have to deal with only one policy, dealing with the insurance company based on that one policy, which will simplify matters both on the part of the insurance company and the policyowner.

Paid-Up Additional Insurance Option

The Paid-Up Additional Insurance Option refers to the option that enables the policyowner to use the dividends in the policy to buy additional life insurance. This is available to participating life insurance policies.

The policyowner can opt to increase the coverage of the existing policy and the face amount that will be added is based on the amount that the dividends can buy. The premiums are based on the current age of the insured, and not on the age when the policy was issued.

This option provides the insured with added insurance protection and also serves to increase the value of the life insurance policy.

Paid-Up Policy

A Paid-Up Policy is a life insurance policy where premiums are all paid up and the insured person continues to enjoy insurance coverage without having to pay for further premiums.

In most cases, life insurance policies have a required premium payment period. When the policyowner has faithfully paid all the premiums in this period, the policy is already paid in full. The policy will continue to provide the insured with coverage until the policy matures, or the insured dies or when he cancels the policy (at which point he will receive the policy's cash value).

There are some who offer their products with a limited paying period, geared towards the needs of their clients and their capacity to pay.

Partial Disability

Partial Disability refers to the fact that a person's ability to perform common tasks is reduced as a result of an injury or illness. However, that person can still do other activities or work. It refers to the person's inability to perform a substantial portion (but not all) of his duties in his job or for any other job, whether on a part time or full time basis. It can also mean that the person can fully do his job or any other job only on a part time basis.

Employees who have partial disability are entitled to benefits from workmen's compensation based on a percentage table, as well as the evaluation of a qualified physician.

Participating Policy

A Participating Policy is a policy where the insurance company pays policy dividends, in proportion to the size of the policy. This is also called a par policy.

The dividends that are used to pay owners of a participating policy are taken from the company's profits. These are paid out on an annual basis. Depending on the policy, there may also be a guaranteed dividend amount, which is specified when the policy is issued.

The policy owner can use the dividends in a variety of ways. He can get the dividends in cash. He can also use the dividends to make up part of the premium payments. Other options include using the dividends to buy additional insurance coverage and to also allow the dividends to accumulate in order to earn interest.

Pay-At-The-Pump

Pay-At-The-Pump refers to a system where the premiums for an auto insurance policy is paid based on a gasoline surcharge. This surcharge is added to the price per gallon of the gasoline. This system was used in the 1990s. Simply put, policy holders pay for their premiums every time they buy gasoline for their cars.

Pay-at-The-Pump Insurance is an alternative to just paying lump sum premiums for auto insurance. Proponents of this kind of insurance point out the advantages of this system - it's more efficient, it lowers the cost of insurance and also enhances equity. The system also encourages prudent use of gasoline and thus benefits the environment.

Payout Options

Payout Options are methods that an annuitant can select as to how he will receive the accumulated value of the annuity.

The payout options include the following:

  • Fixed period option: the accumulated value is paid out on installment basis over a period of time specified in the annuity
  • Lump sum distribution option: the annuitant receives the balance in one payment.
  • Life annuity option: the annuitant receives regular payments of a specified amount as long as the annuitant lives. One variation of this is a joint and survivor annuity, where the payments last for as long as one of two partners lives.
  • Fixed amount option: the annuitant receives a fixed amount every month (or at specified intervals) until the annuity's accumulated value is exhausted.
Pension Benefit Guaranty Corporation

Pension Benefit Guaranty Corporation (PBGC) is a federal government agency that was an offshoot of the Employee Retirement Income Security Act (ERISA). This agency is in charge of the Pension Plan Termination Insurance Program. It works to protect the interests of employees who find that their pension plans are being terminated. It makes sure that these employees receive the benefit payments that are due them at the time that the payments become due.

It also works to keep the premiums for pension funds low and promote the development and growth of pension plans that payout defined benefits. The PBGC pays out benefits to qualified pensioners, subject to the maximum guaranteed as benefit prescribed by law.

Pension

A Pension is a benefit program that enables employees to enjoy retirement income when they reach retirement age. The pension is subject to a minimum age and minimum number of years of service. This is to protect employees at the time when they no longer have a regular income after they retire.

Pensions are paid in installment, usually on a monthly basis. Pension plans may be set up by the individual (with the help of insurance companies), by the employers and by the government, trade union or employer association.

The government offers tax incentives, both for employers and employees, to encourage them to participate in pension plans. Some pensions are also programmed so that beneficiaries can receive the benefit payments in the event of the insured person's death.

Per Capita Beneficiary Designation

Per Capita Beneficiary Designation is one way a life insurance policy's beneficiaries can be designated. These beneficiaries equally share the death benefit, as long as a beneficiary survives the insured.

For instance, John designates Paul, Patrick, Pam and Pat as his beneficiaries. Under the Per Capita Beneficiary Designation, each of these beneficiaries will receive 25% of the death benefit. However, If only Paul and Patrick survive the insured, they will divide the death benefit between the two of them and thus get 50% of the death benefit.

This is different from the per stirpes beneficiary designation, where the death benefits are distributed according to a class and may vary depending on the number of people falling under a class.

Per Stirpes Beneficiary Designation

Per Stirpes Beneficiary Designation is one way to designate what the beneficiaries of a life insurance policy stand to receive upon the death of the insured person. It divides the death proceeds depending on the class of beneficiaries. For example, spouse of the insured or children of the insured are considered a class.

Per Stirpes Beneficiary Designation allows the descendants of the deceased beneficiary to receive the portion of death benefits due to the beneficiary.

For instance, Patrick assigns his two children Peter and Paul as his beneficiaries. In the event of Patrick's death, where Paul is the only surviving beneficiary, Peter's part of the death proceeds will not go to Paul. Instead, it will go to Peter's heirs.

Peril

Peril, in insurance terms, refers to a defined risk or cause of loss. This risk is insured through an insurance policy. This term is usually used in the Property and Casualty line of insurance.

Usually, the risks that an insurance policy protects against are listed in the insurance policy. The insurance company will only pay for claims that were caused by the covered risks. An all-risk policy, on the other hand, will pay for claims for all causes of loss unless the policy specifies that the risk is not covered.

Examples of the risks are windstorm, theft, death and flood.

It is recommended that you review your policies to see what perils are covered.

Period Certain

Period Certain refers to the period or the length of time that the annuity is guaranteed to make income payments. This is regardless of whether the annuitant survives the period or not. If the annuitant dies before the specified period is finished, his beneficiaries will be the ones receiving the income payments.

This is provided for annuities with period certain. Under an annuity with period certain, the insurance company or annuity issuer is obligated to provide the specified income payments for the number of years that was originally guaranteed or promised.

For example, if Sue buys an annuity with period certain with a 10-year guarantee period, she stands to receive income payments for at least 10 years. If the annuity still has cash values left after that, the annuity will continue to pay until the cash value is used up.

Personal Articles Floater

A Personal Articles Floater is a policy or an endorsement to a policy where personal articles inside an insured home is also covered or protected with insurance.

Normally, a standard insurance policy will not cover valuable items that are easily removed from a house. This includes jewelry, furs, electric appliances, silverware, musical instruments, valuable collections (coins, stamps, comic books, etc.) and other personal valuables.

A person with a homeowners' policy will have to get each of these items insured. A floater will have to be issued for each article that the homeowner would like to insure. When covered, the insurance company will pay for the loss or damage of these items due to a covered risk (like theft or fire).

To determine the value of the articles and thus get the right amount of insurance for these, it is best that the items be appraised by a qualified appraiser.

Personal Injury Protection Coverage (PIP)

Personal Injury Protection Coverage or PIP Coverage refers to that part of the auto insurance policy that provides payment for medical expenses when the driver and passengers of an insured car are injured.

PIP Coverage will pay for basic medical expenses, as well as lost wages and other damages. PIP Coverage is usually paid under a no-fault policy. That means the benefits are paid regardless of who is at fault with regards to the accident.

The no-fault principle that covers PIP would mean that PIP claims will not adversely affect the premiums of the insured or of the claimants.

PIP Coverage is required for some states.

Personal Lines

Personal Lines refer to personal products designed, produced for and brought by individuals, who would like to protect themselves against personal risks or causes of loss. These are property and casualty insurance products like auto insurance policies and homeowners insurance policies.

A brief rundown of personal lines products include:

Automobile insurance: This would include not just cars, but RVs, snowmobiles, motorcycles and so on.

Homeowners insurance: This would include coverage for primary residences, flats, apartments, condominiums, cooperatives, summer homes and waterfront properties. You can also include floaters for personal items.

Watercraft: This would cover any type of watercraft such as yachts, motor boats, sailboats and canoes. There are also some insurance coverage offered to jet skis and other similar recreational watercraft.

Personal umbrellas: This would include additional coverage for all liability policies so as to protect personal assets.

Point-of-Service Plan

A Point-of-Service Plan refers to a health insurance plan that gives covered employees the option with regards to where he will avail the medical treatment at the point when he needs the medical treatment.

The employee can choose from medical providers that belong inside the managed care network or providers that don't belong to the network.

What happens is that the employees will choose a primary care physician and this physician will monitor the health care provided to these employees. The primary care physician is then considered the point of service. The doctor can also refer the employee to providers that don't belong to the network.

The drawback for choosing a medical provider outside of the network is that the employee is the one who is responsible to do the paperwork - the forms, bills and recording of receipts.

Policy

A policy outlines the agreement between the insurance company and the policyholder. It is a legal document, a contract that provides the details as to who is being covered and what coverage is provided.

Details that the policy outlines include:

  • The premiums to be paid, and when these premiums should be paid
  • Who the beneficiaries are, and how much they stand to receive (if this is specified)
  • Deductibles that the individual or entity has to pay
  • The perils that are covered, as well as those that are excluded
  • For health insurance policies, the policy states which medical services, medicines and treatments are paid or reimbursed

The policy serves as a basis when insurance policies and insured persons want to check as to what claim is payable.

Policy Dividend Options

Policy Dividend Options are options given to the policyholder as to how he will receive the dividends. These are applicable for participating life insurance policies.

The policy owner can decide to get a check for the dividends, use the dividends to pay for a portion of the premium (so that he pays only for the difference of the premium and the dividend) or use the dividends to pay for paid-up insurance. Another option would be to use the dividends to buy additional term insurance for a year.

The policy owner can also decide to leave the dividends with the insurance company in order for it to obtain interest earnings. He can indicate whether he will allow the insurance policy to use the dividends to pay for the premiums in case the policy owner fails to pay the premiums due.

Policyholders’ Surplus

The Policyholders' Surplus refers to the monetary amount left after the difference between the assets and liabilities of an insurance company is taken out. Liabilities include all the benefits payable to the company's policyholders. The surplus also includes special voluntary reserves as well as paid-up capital.

The surplus acts as an additional safeguard, above and beyond the company's reserves. This acts to protect against a large number of claims should a catastrophic or unexpected event happen.

Insurance companies are always mindful of this, as well as other performance ratios that show liquidity, since the ability to promptly pay benefit claims is important to players in the insurance industry.

Political Risk Insurance

Political Risk Insurance refers to the protection provided to businesses against losses due to the political condition of a country. This is especially for businesses that operate out of the country and includes political unrest and upheaval, such as revolution, war, or the confiscation of property. It also protects against a foreign government's altering of their policies and regulations that will result in a loss.

Political risks also include business interruption, inability to repatriate funds or convert it into applicable currency. It can also include acts of the government to wrongfully call on-demand guarantees (such as letters of credit), as well as acts of frustrating or repudiating contracts.

Political risk insurance is not just provided by private insurance companies. Public agencies also sell this kind of insurance.

Pollution Insurance

Pollution Insurance refers to coverage that protect against losses and liability due to pollution and the damage it does. This includes payments for losses caused by liability suits, the cost of cleaning up the effects of pollution, as well as fines, penalties and charges levied by the government to polluters.

Pollution insurance is offered by just a few insurance companies, and is very flexible in terms of the scope of coverage, as well as the associated premiums. The main clients of pollution insurance are businesses and companies belong to industries that pose a high risk of creating pollution. This includes industries such as oil refineries and factories.

Punitive damages for polluters can reach millions and may be quite heavy for businesses and individuals to carry.

Pool

"Pool", when used in insurance, refers to an insurance pool. These are contributions or assets made by various insurance companies.

Insurance pools are used to cover risks that an individual insurance company could not afford to take on by itself. This means that the risk is either unique or too big for one company to handle. What insurance companies do is to pool their resources so that they have the capacity to offer a higher level of insurance. The government, to encourage such pools, also gives special incentives.

Claims made by a policy are taken from the pool, and not from the "pockets" of the insurance company.

Pre-Existing Condition

A pre-existing condition is a disease, illness or condition that existed even before a life or health insurance policy is issued. Knowledge of a pre-existing condition may cause the insurance company to refuse an application, or to issue the application but state limitations on risks the company refuses to cover.

Pre-existing condition is defined in two ways. One, the individual should have received treatment or medical care for the condition at least three months immediately before the effective date of the coverage. Two, the condition (sickness or injury) first appeared or manifested itself within a stated length of time before a policy was issued. The period in question is usually two years and the condition is usually also not disclosed on the insurance application.

Preferred Provider Organization

A Preferred Provider Organization is a group or network of doctors and other medical providers that are part of a managed care plan.

The medical providers (doctors, hospitals, nurses, etc.) belonging to a network are usually paid using a negotiated fee schedule but are required to charge using a fee-for-service basis. These medical providers agree to give their service for a lower-than-normal fee in exchange for more patients being sent their way. Existing provider organizations may also charge insurance companies for access to the network.

Some managed care plans also allow their members to use providers that are not part of the preferred provider organization. However, these are commonly more inconvenient to use.

The preferred provider organization is usually characterized by its involvement in the medical utilization review process and a pre-certification requirement. By pre-certification, we refer to the need for patients to get the approval of the insurance industry (by way of a primary care physician) before they can make use of the services.

Preferred Risk Class

A Preferred Risk Class is a group of people that show a significantly lower risk of loss.

They are called a preferred risk class because the likelihood that a loss will happen in a group within a period of time is considerably lower when compared to another group covering the same time period. This risk is related to mortality (the likelihood of death) and morbidity (the likelihood of sickness and illness to occur in a given population).

In general, persons belonging to these groups exhibit excellent health habits, family medical histories, belong to "safe" occupations and are generally in great physical condition. Members of this group also do not smoke.

People belonging to a preferred risk class usually are charged with lower premiums.

Premises

Premises refer to a specific location of property, as it is stated and defined in the insurance policy.

Any individual or business can buy coverage for premises liability. Premises liability coverage protects the insured as well as his assets, especially against a lawsuit in the event that someone is injured in his own home. This kind of insurance will pay for legal defense costs, as well as any damages that may be awarded.

Premises liability may cover injuries that are unintentional on the property owner's part, even if it was a result of his negligence. What's not included would be injury that resulted from the owner's intention, such as the act of laying out a booby trap for thieves.

Premium

The Premium is what insurance policyowners pay, as a price of the insurance policy. Premiums are usually paid on an annual or semiannual basis.

Premiums are computed by actuaries hired by insurance companies. This includes the cost of accepting the risk, as well as expenses associated with the policy such as agent's commissions and overhead costs. Actuaries also make use of mortality and morbidity tables, and other statistical tools.

To save on premiums, it would be good to get quotes from different insurance companies. When comparing, don't just check on the premium, but also the face amount and the exclusions declared.

When the policyowner fails to pay the premiums on time, the policy may lapse and eventually be cancelled.

Premium Reduction Option

The Premium Reduction Option is an option that policyowners of participating life insurance policies have to use dividends in order to pay premiums. The insurance company then applies the dividends of the policy to pay for premiums, and then the difference is billed to the policyowner. Thus, the dividends are used to reduce the amount of premium that needs to be paid.

This option can be selected, as opposed to using the dividend to pay for a higher insurance coverage or to allow the dividends to grow and earn interest. The policyowner can also get the dividends as cash.

Premium Tax

The Premium Tax refers to tax levied on premiums paid by policyowners to insurance companies. The premium tax is paid along with the premiums, with the insurance company acting as the collecting and remitting agent, meaning the insurance company gets the premium taxes and submits these to the IRS, the state or municipality.

There are different premium tax rates levied on various insurance policies, particularly to life insurance, homeowners insurance and auto insurance. Travel insurance traditionally has high premium tax rates.

However, there are tax incentives provided for some insurance products, particularly those with a saving component and other kinds of long term insurance.

Premiums in Force

Premiums in Force (for life insurance) refer to the policies' face amounts (as well as dividend additions) that are in force at a certain time period. These include policies that haven't been expired as well as cancelled.

This is a key performance measure - not just for sales performance, but for the risk the company is carrying and has on its books at a certain point in time. This is used to indicate the size of the insurance company.

Premiums in Force are part of the reports an insurance company are required to submit to the state insurance commission. While Premiums in Force for life insurance companies are expressed as the face amount, this is expressed as premium volume in a health insurance company.

Premiums Written

Premiums written refer to the total amount of premiums on policies that are in the insurance company's books at a given point in time. These include all premiums, regardless of whether it is earned or unearned. This just provides how much premiums all of an insurance company's customers are expected to pay during a year (or any period specified). Premiums written are also used to show sales volume, as well as the size of the company in relation to other insurance companies.

Premiums written can be computed as net premiums written or gross premiums written. Net premiums written are gross premiums written less premiums and expenses paid to reinsurance companies.

Primary Beneficiary

The Primary Beneficiary is a person or entity designated to receive the death benefits of a life insurance policy or annuity in the even to the insured person's or annuitant's death. The primary beneficiary usually is the spouse, the children or the company the person works for (if that company is the one who insured him as a key man).

There can be one primary beneficiary and a percentage can be assigned as to what portion of the proceeds they will receive.

This is also called a first beneficiary, since the primary beneficiary is the first in line to get the benefits.

Primary Company

The Primary Company is the insurance company that ceded a portion of the insurance risk to a reinsurance company.

An insurance company would like to limit its exposure to the risk it accepts and instead spread the risk to one or more reinsurance companies. In this case, the insurance company becomes the primary company or ceding company, while the reinsurance company is called the assuming company. The reinsurance company receives the portion of the premium in proportion to the risk being accepted and it will also be responsible for paying the proportion of the claim when the covered risk does happen.

By spreading the risk, the primary company reduces its risk profile and improves its financial position.

Primary Market

The Primary Market refers to the market where new issue securities are sold directly by the issuer.

When governments, companies or other groups need money for projects and to fund their operations, they can issue equity or debt based securities. Investment banks or underwriting groups helps facilitate the direct sale of these securities to investors. The beginning price range is set and the issuing company or government can receive the proceeds of the sales directly from the buying investors.

The primary market gives the investors the opportunity to get first crack at the security being issued. Then, when the initial sale is concluded, the trading goes on to the secondary market.

Prime Rate

The Prime Rate is the interest rate given to borrowers who have a high credit rating.

This credit rating indicates the credit-worthiness of a potential borrower or his ability to pay his loans promptly. The prime rate is commonly used as the base rate for loan products like car or personal loans and credit cards. The rates provided to customers are usually a bit higher than the prime rate.

The prime rate is not the same for all financial institutions, although smaller institutions may base their prime rates on major banks or institutions such as the Wall Street Journal.

The interest rates given to a prospective borrower depends on the borrower's credit rating. The lower the credit rating, the higher the interest will be.

Prior Approval States

Prior Approval States are states that require insurance companies to first file any premium rate changes with them and await approval on these rates before these can be applied to their products.

State regulators closely watch the rate changes of insurance companies that are licensed to operate in the state. There are a few remaining prior approval states, since most states have decided to go into an open competition system. Instead of the state insurance commission doing the act of regulating the premium rates, the open competition system contends that market forces will be the ones dictating the premium rates. This is because as there is market competition, an insurance company would try to offer attractive rates in order to generate sales.

Private Mortgage Insurance

Private Mortgage Insurance (also called a lenders mortgage insurance) provides protection to the creditor or lender in the event that the borrower (the mortgagee) defaults on his mortgage loan.

This insurance is required before a proposed borrower is allowed to take on a mortgage. It is usually the lender that will buy this insurance and will just pass on the cost to the borrower as part of the mortgage fees.

Private Mortgage Insurance is commonly taken for mortgages where the down payment is at 20% of the property value or less.

Mortgage insurance is only issued once the borrower meets certain criteria - such as the borrower's requirements (financial history, credit rating, etc.), the size of the mortgage and the type of property the mortgage will cover.

Private Placement

Private Placement refers to securities sold straight to the investors and do not go through or are registered with the Securities and Exchange Commission. This is the act of trying to raise capital by going directly to investors. These investors are usually holders of pension funds, insurance companies, banks and mutual funds who are pre-selected so there is no need to have an initial public offering.

There is no need for securities sold this way to be registered with the Securities and Exchange Commission, since the sale is made only to a few people. Commonly, there is also no prospectus or detailed financial information that accompanies the private placement.

Products that are sold in private placements include stocks, warrants or promissory notes, as well as shares of preferred or common stocks.

Product Liability

Product Liability refers to who is responsible and who gets sued for damages for injury caused by a defective product. The manufacturer of the product is usually the one who holds product liability. Any injured party can sue the manufacturer for damages without the need to prove its fault or negligence.

In some cases, suppliers, retailers and distributors are also held responsible for the injuries. They have the responsibility to produce and market safe products and will be held liable for their failure to do so.

There are basically three major types of claims when it comes to product liability. These claims mostly stem from a design defect, a manufacturing defect and a failure to warn. A design defect means that the design is inherently dangerous and defective. A manufacturing defect is a failure to produce the product properly due to shoddy workmanship or the use of poor-quality materials. Failure to warn refers to adequate warnings placed on the label to avoid any danger with the product.

Product Liability Insurance

Product Liability Insurance provides manufacturers, dealers and retailers with insurance protection in the event that they are faced with a lawsuit filed due to the bodily injury or property damage caused by a defective product.

This covers defense fees, legal fees, as well as the payment of the damages when these are awarded. These are subject to a maximum limit stated in the policy.

This insurance is usually bought by those who are in the manufacturing business who want protection from the financial loss lawsuits may cause. In today's litigious society, it becomes more and more necessary for businesses and individuals to protect themselves from liability.

Professional Liability Insurance

Professional Liability Insurance provides professionals with protection in case they are faced with lawsuits due to their acts of error, negligence or omissions that resulted in the injury of their clients.

This kind of cover is also called an Errors & Omissions policy. For professionals, it is extremely important to be covered at all times.

Professional liability insurance may process claims based on claims made basis and on occurrence basis.

  • For claims made basis, the insurance will pay when the claim is made at the time that the policy is in force.
  • For occurrence basis, the insurance will pay regardless of when the claim is made (even after the policy has ceased being in force for years), as long as the incident occurred at the time the policy was in force.
Proof of Loss

Proof of Loss refers to the documents that a claimant needs to show to the insurance company to prove that a loss was incurred.

The proofs of loss would serve as one of the things the insurance company will look into when processing a claim. For instance, for beneficiaries to claim death benefits, they have to submit a copy of the death certificate.

The documents needed as proof of loss depends on the type of policy involved. It can include receipts, police reports, receipts, pictures, sworn statements and so on. The claimant is also required to fill up a claims form.

For claims against loss of insured property, the claimant may also need an appraiser to look at the extent of the damage, what was the reason for the damage, and an estimate the dollar amount required to repair or replace it. It is important for an adjuster to determine the cause of the loss, since the insurance company will only pay for covered causes of loss.

Property/Casualty Insurance

Property/Casualty Insurance provides protection that pays for loss or damage to insured property, as well as any legal liabilities that may arise.

This is a line of insurance that includes products such as auto insurance, homeowners insurance, and commercial insurance. Property and casualty insurance protects business and individual property from physical damage or loss, caused by accident, theft and by other covered means. It also provides protection against liability related to property.

Property and Casualty Insurance is one major line in the insurance industry (which is also called non-life insurance in some countries), while another line will be life and health insurance.

Property/Casualty Insurance Cycle

The Property/Casualty Insurance Cycle refers to the business cycle in the insurance industry where there are periods of soft market and hard market conditions.

In a soft market, insurance coverage is widely available and premiums are more or less steady or decreasing. The soft market is a buyer's market. In a hard market, there is a marked increase in premium because insurance coverage is less available and it becomes a seller's market.

There are a variety of factors that cause the property/casualty insurance cycle. These include the state of the economy (downturns and upturns), changes in the claim reserve dollars of insurance companies, as well as catastrophic events. The law of supply and demand comes into play. Demand is linked to the needs and appetite of insurance buyers, while supply is linked to the policyholder surplus.

The cycle can vary from state to state.

Proposition 103

Proposition 103 refers to the ballot initiative that demanded that insurance rates be lowered for statewide auto insurance, and that the rates be made directly proportional to one's driving records, instead of his geographical location.

This initiative was passed in California in November 1988 and state Insurance Commissioner Garamendi implemented the initiative. It required a rollback of insurance rates, making insurance companies decrease their rates for at least 20% of the existing premium rates.

Aside from auto insurance, proposition 103 also regulates other lines such as homeowners, business owners, inland marine, dwelling fire, umbrella coverage, boiler and machinery, earthquake, medical malpractice, professional liability, commercial aircraft, and multi-peril, other liability, among others.

Purchasing Group

A Purchasing Group refers to an entity that purchases a huge chunk of insurance for a similar risk. It then offers this insurance to companies or businesses that will need coverage for the risk. It can also be that companies or parties that have similar exposure to a risk would band together and incorporate themselves into a group to buy the insurance. They do this so that they can buy it on a group basis and thus benefit from discounts offered to a group. An example would be a trade association.

The Federal Liability Risk Retention Act of 1986 authorized the formation of such purchasing groups. There are no specific legal requirements pertaining to the formation of purchasing group as well as its legal structure.

Please take note that the purchasing group is not an insurance company.

Pure Endowment

A Pure Endowment is a life insurance product that provides a regular income as long as the insured lives. It can also refer to an insurance product that pays an amount equal to the face value if the insured person is living at the date the payment is due. A pure endowment is a less popular insurance product, with only a few, if any, sold at the present.

This is because there is still an element of risk that the insured person will die before the maturity period. If that person dies before the payment is due, the beneficiaries stand to receive nothing.

Pure Life Annuity

A Pure Life Annuity is a type of annuity that provides income payments to the annuitant as long as the annuitant lives. When the annuitant dies, the payments stop.

These payments can either be variable (tied to the performance of the market) or fixed (an amount guaranteed at the beginning of the policy).

With this kind of annuity, the annuitant may not fully receive the value of their original investment, if he dies "early". To prevent this, one can add a guaranteed annuity class for a period certain. With this, there is a guaranteed payment period where the insurance company has to pay for the income payments for the length of that period. If the annuitant continues to live after the period certain, he still stands to receive regular annuity payments.

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